Another idea:

A mechanic based on the ratio of population to military (and maybe taxes). The less military you have (relative to pop) the "happier" your people are. High happiness has benefits - maybe new territory voluntarily joins your country each turn (new land), maybe production goes up, maybe building costs go down.

The idea would be that you get benefits from running lower military, but that of course exposes you to attacks and decreases your ability to retal. So it is a risk/reward balance.

Perhaps you could also voluntarily increase your food consumption to raise happiness (feed them more). This might even allow a trade-off between a higher tax rate (lowers happiness, increases income) and a higher food burn (increases happiness, costs $$/production).

You could also make allies improve happiness... the population would feel more secure knowing their country has allies.

This would encourage player interaction / cooperation.

You could modify stir rebellions to affect happiness.

heh; there already is an advantage to low military -- less expenses!

though, an interesting idea for an additional modifier

and that's why some (read many) players run basically defenseless countries and suiciders have easy days.