This will likely require some tweaking, for sure.
What if only happiness from needings is removed? So working on specialists in a puppet city still costs happiness.
At 25% yields that feels like I could grow very frustrated at my city governor for 'wasting' happiness though.
Puppets only provide 25% of everything, though - so they'll grow slowly, produce slowly, generate minimal amount of all yields
Wait are you planning 25% production? That seems like a problem. I was thinking puppeting would be a good middle ground to annex in a certain amount of time. Sometimes a city that's totally under developed you could leave as a puppet while it builds it's basic buildings, then annex when it's back up to snuff. Choosing when to annex would be an interesting choice that would allow more player skill.
At 25% production no one will ever want to annex the puppet. Annexing will get worse and worse over time, rather than better (which I think is more realistic and better for gameplay.) I'm not even sure it should produce less food.
If the yields are too strong at 25% while growing well, lowering them to 20 or 15% would be better than making the cities 'deteriorate' compared to the rest of the world.
Generate a minimal amount of free yields though. An annexed city has to first provide enough yields so as to be of benefit to the civilization, else I am actually better off without it due to the culture,science, tourism penalties. With this, any yield the puppet provides is pure gravy. Its like I have a GPTI that provides every yield and just increases in yields every few turns.
There are two options:
1- Most puppet cities are or will make up for the % cost increase.
2- If 75% of an average city's yields can't surpass the % increase for having a new city, the % increase is too high.
The fact is that if #1 is true the yields aren't "free" just because they come without those costs. Puppets cost the effort of capturing a city, and more importantly they come at the opportunity cost of not annexing them.
If Annexing them increases science and culture costs by 7% of the base, and the average city increases science and culture by 10% of the base cost, then you're losing science and culture by not annexing. You're also losing gold and control.
If Annexing them increases science and culture costs by 7% of the base, and the average city increases science and culture by 5% of the base cost, then we need to play with the numbers.
I think we'll need to test and see partially.