Answer: First of all, you said, "I have seen several leaders who are strict and tough with their people.." Let me correct you. Those people were NOT leaders. Leaders don't bully. They may have been tyrants or crappy managers but don't ever call them leaders. A manager is not automatically a leader because of his title. Managers manage. Leaders lead. If someone is shouting at you and putting fear into you, they are not leading you - they are chasing you - which means they are behind not in front.
People may seem to dig down and get a job done when they feel threatened but the truth is that when you threaten someone, the relationship changes forever. Your people will now start working on an exit strategy on their terms. They will no longer be engaged in their work - they will tolerate and humor their bosses until such time that they can leave on their own terms. In the meantime, they will do just enough to not get fired.
As for the people who are suddenly able to increase production because of fear, well they were obviously coasting and taking advantage of the company prior to the threat - otherwise there would have been no need for a threat. They should be fired regardless of their current performance. If the only time an employee performs is when threatened, then fire him. He's worthless and dragging the company down - others are having to carry him and his load and it's unfair to the people who do their work diligently. The employee in question wasn't doing more because more wasn't expected. That's just bad management.
Although, it may seem like productivity rises after a threat - the truth is that employees end up doing just enough to placate their bosses and not get fired. It's the illusion of productivity and it will be short-lived because the damage has been done - disconnected feelings of mistrust, frustration and regret will settle in.
Threats and intimidation are so 1950's and any manager who still uses them needs to be fired and enrolled immediately into anger management before they are ever allowed to supervise again.