This article argues that the influence of democratic institutions in international relations extends beyond the military realm and into the economic. The authors extend Bueno de Mesquita, Morrow, Siverson, and Smith’s institutional theory of political regimes to explain the use and variety of economic sanctions in world politics. It is argued that democracies impose sanctions more often than other regime types because they encompass a greater variety of interest groups. Yet, institutional incentives for successful foreign policies lead democracies to prefer sanctioning non-democracies instead of democracies. The pacifying influence of jointly democratic regimes, then, extends into the economic realm. Further, these same institutional incentives account for variation across regime types in the choice of sanctions used and the goals pursued. Owing to incentives to minimize harm to their public and achieve successful foreign policies, democratic regimes are more likely than non-democracies to impose financial sanctions and pursue minor foreign policy goals. The authors use the Hufbauer, Schott, and Elliott sanctions data set to empirically evaluate each hypothesis. The empirical analysis supports the argument that domestic political institutions affect the incentives of leaders, and therefore the foreign policies of states.