Even if Civ 5 aims to make small empires more competitive, should annexing never be an option then? Because the way it is now, unless your puppet the city, it's almost always the better option to raze it and build a new one on top of it. This way, you don't suffer the added unhappiness for the duration of the courthouse's ridiculous build time and you don't need to pay 5g maintenance for the courthouse either.
THAT's what I call broken game mechanics: A penalty that is a nuisance for people who "honestly" play the game while others with a little more knowledge of the game know how to easily exploit their way around it.
What makes all of this even more ridiculous is the fact that occupying a foreign city has lasting negative consequences for the happiness and economy of your empire, while razing a city, intentionally killing thousands of innocent people in the process, doesn't.