If city levels provide more benefit than they currently do combined with better balancing of the amount of food in the world, you end up with a scenario where you can choose to build lots of cities that are low level or few cities that are high level.
this is the crux of the issue i think. food USED to be the prime determinant of population growth because of the cost of housing and the scarcity of food. however, because it was a hard cap it caused frustration; people bawled about never having enough food to build that one extra house they needed to reach the next level, and so the limit became compromised.
and it's a fair complaint to my mind; why should someone be doomed to level 2 cities until they're destroyed, just because they couldn't find another food resource?
with food as a hard limit, you end up with only two possibly situations: either i have enough food, in which case i will spam settlements and my total population grows in proportion to my number of settlements; or my civilization stagnates because it can't grow anymore. neither of these possibilities is fun, which is why i suggested a softer more nuanced approach. it's symptomatic of the wider problems with the game; either i can't do anything at all, or i can do things to an obscene degree.
there are just far too many can'ts in this game.
i can't cast spells until i've built a research building and discovered them, i can't have 3 guys fighting together until i've researched it, i can't kill a LEVEL 1 BANDIT with my MIGHTY sovereign (really, i reloaded three times) until i've bought him some equipment that i can't buy until i've researched it (and even then i likely can't justify the expense), i can't build a merchant until i've increased my food supply, i can't form a worthwhile economy without a gold resource, i can't recruit cavalry unless i happen to control the one resource per map that allows it, i can't complete the quest because the objective spawned on the other side of neutral territory, i can't negotiate with anyone because my power rating is too low, even though i walk all over them in every fight, repeat ad infinitum.
fun games are built around softer controls that empower the player and show him the sorts of things the game can do from turn one. softer controls limit the extent to which players can do things, and the power of the decisions that they are able to make when they make them; they work under the hood, guiding the players hand instead of boxing it in and continue to affect him throughout the game, instead of having no effect once requirements have been reached.
you say you're not going to reform the economy fundamentally because it requires balancing from scratch. i personally don't believe that under the current arrangement it will ever be balanced in a way that is fun. i can't imagine this will be anywhere near as tough to balance as specialist slots, which if anything will only highlight how broken flat pop growth / city is: the importance of population will only encourage more settlements because more settlements is the best way to get more pop. so long as you have the food. and if you don't the game will be reduced to scraping by in a way that is fun for no one.
i will not pay for any additions to the game until i feel the economy has been seriously and fundamentally reassessed. this is not intended as a threat; it is just what i have resigned to because i just don't find the game fun at present. unfortunately my experience with GC2's economy does not lead me to believe this will happen. we will probably get a whole new set of arbitrarily different tech trees and random events before that happens.