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There are buildings that only work when a system is above a certain approval threshold
Every system over limit gives you a 10 penalty too approval too all systems
Going wide gives you more access to luxury and strategic resources but if you go too wide systems start too revolt, you can bribe the system with luxury resources or suppress them for higher approval now at the cost of perlonged negative approval. If a system revolt lasts a certain number of turns ( based on game speed ) it will cause ur current government too collapse, and you have too wait turns before you can install a new goverment.
Usually it's only the happiness penalty when you go over the cap, which can be easily countered with buildings, laws, racial bonuses, etc.
If you go federation government you increase the cap significantly.
Some races get an extra planet from their quest line.
Some races can get basically infinite happiness, like Unfallen and Horatio.
Other races like Vaulters and Hissho don't like to build wide at all... so don't do it. :)