So how does a Star Empire work? This question was recently asked in a Traveller-related Facebook group. For your reading pleasure, here is an edited version of my reply there.
The advantage of a hereditary ruling caste is relative stability. Sure, there are intrigues and some internecine warfare, but as a whole, the people (or aliens) who run the system have interests going many generations into the future and thus a stake in maintaining the status-quo. Plans are long-term and projects suffer from less interruptions. One stable form is the "Zaibatsu" type of system of a few large monopolist corporations run by great noble houses with hereditary managers and owners. This also stabilizes the economy as a great houses' business partners and rivals are the same families for decades or centuries - you can "pre-arrange" trade and agreements and keep surprises to a minimum.
The big disadvantage is that such a system places a ceiling to a commoner's progress in life and social station, no matter how talented or ambitious he is. When the system works well, it compensates by great house patronage of various artists and scientists, though this still offers less opportunities than a meritocracy. When it works badly, the system breeds incompetence and blocks innovation.
The most stable, but also most stagnant, system is one run by long-living nobles using anagathics to rule for centuries. Rulers plan for the very long term and act consistently for centuries, but also remain the same people with the same ideas and ways of thinking.
In
These Stars Are Ours!, the Reticulan ("Grey Alien") Empire is such a polity. Nobles receive a special kind of longevity treatment which allows them to live for centuries - and in some cases almost a millennium. Competent commoners or those with psionic potential can rise to the Gentry - lesser nobility - but cannot go beyond it. The upper crust of Reticulan Imperial society is strictly hereditary and with life expectancies measured in centuries.
This system was stable for millennia. It brought the Reticulans to a stable, powerful empire with enormous TL13 wealth. The downside was that in recent centuries, the Empire ossified to such an extent that it blocked innovation and resisted change. For many commoners, this state of affairs was good - after all, thralls (such as the Terrans) bore the main brunt of fighting the Empire's enemies, while most Reticulans did not suffer from war or poverty and enjoyed an excellent quality of life. Many scientists and engineers, however, resented such a system in which their work and creativity were harshly restricted, and where the practically-immortal ruling caste was hostile to new ideas.
This gave birth to the Technocratic movement - an underground movement desiring a highly meritocratic society run by scientists, engineers, and mavericks based on competence and innovation. This ideology fermented in the shadows for centuries, but boiled into open rebellion when Terrans threw away the Imperial yoke. Now the Empire has to contend with the aggressive Terran upstarts (a republic - militaristic but quite meritocratic), as well as with the Technate created by the Technocratic Movement on Reticulan worlds conquered by the Terrans... And the constant threat of additional Technocratic revolts.
Still, the Empire remains strong and stable, even though it power waned to a certain degree after losing the War to the Terrans.
Also, when the type of Empire described above functions well, direct taxes are low. There is a certain indirect "tax" caused by Great House monopoly on certain staple good, as monopoly naturally inflates prices. However, as long as the system functions efficiently, such increased prices are still reasonable and profits allow the Great Houses to fund the functions of government out of their own pockets. Therefore, the average citizen can ignore politics for the most part - no need for any "civic virtue" or active participation in governance. The government runs itself, collects low taxes, and while certain staple goods are monopolized, many others enjoy free trade. So the citizen lives his own life and prospers, though he has no say whatsoever in the affairs of state.
When the system malfunctions, however - which is inevitable on the long run - things are much, much worse. Incompetent debutantes and playboys leaving the affairs of state to similarly incompetent toadies. High taxation to fund the good life and white-elephant projects of the Great Houses. Economy clogged by over-monopolization. In military affairs - an apathetic population lacking any desire to fight protected by unreliable huscarl mercenaries and Imperial forces led by inept nobles promoted to the top ranks by the virtue of high birth.
This is my take on Star Empires.
