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The Palace is your capital building. The farther cities are from it, the more corruption they will have. You can have only one. Under Communism the Palace reduces corruption by 50%. The Palace can be sold at any time, however, an empire that is not under Democracy or Communism and has no Palace will suffer a crippling amount of corruption.
At certain points during the game, you are given the opportunity to expand the palace. There are three different architectural styles to choose from.
When people began concentrating in cities, their governments became more structured and formalized as well. At an early stage, the ruler of the city established headquarters buildings where the business of running the city was conducted: citizens were interviewed, edicts were issued, taxes were collected and stored, and diplomacy was carried on. In many cases, these seats of governmental power also served as the living quarters of the ruler. In cities that were sufficiently wealthy, these headquarters often became Palaces, immense and imposing structures that were a source of civic pride, and which reinforced the aura of power attached to the ruler.