In current games, literacy (in percentage) does not have any effect in the gameplay, I think. It is just an indicator. The importance is not in the literacy but in the effect of the library, university... I would like to suggest a reform in the way literacy is calculated and its effect in the game.
Firstly, the calculation of literacy takes only in account the number of libraries in cities (as I can see, more populated ones, contribute more to the percentage of overall literacy), but ignores universities. It is possible, if we build one library per city to reach 100% of literacy. I want to suggest to low the maximum percentage of literacy to 25% with just libraries. This means that universities contribute to 75% in cities to the literacy rate (it also depends of the population of that city). In ancient world, libraries were a important source of knowledge but only for part of the population and actually, universities (and schools) are the main reason of high literacy rates. The change does not affect the effects that these buildings have in research.
Secondly, the rate of literacy would now have an effect: the intolerance to the lack of freedom. High rates of literacy means high intolerance to despotism and fundamentalism and a moderate intolerance to monarchy. A nation with high literacy rate (and then good research rates) under a dictatorial government would suffer rebellions (coup d'etat) really often. I exclude communism because, in theory it can be a free country (Soviet Union was not a free country, but has a important center of science, so communism if include in the group of countries that can enter in civil war by this way, the intolerance to the government would be small and rebellions rare).
The rate of literacy could also contribute to an intolerance to war, working in the same way as the intolerance to the lack of freedom. But this is an additional feature that would be more difficult to accept since the war is the current base of the game.
If the second point is implemented, despotism would turn into fundamentalism, by default, since the leaders, would want to keep the literacy rates (and research) low to prevent civil war. This will also force countries that want to survive, to increase science, investing in library and universities (increasing literacy), to move into more democratic governments (or, as already said, to communism).