i have always run my 2016 12" macbook (always meaning, since 2016) with the display at 'more spcae' and have never experienced lags or stutters... or experienced 'reduced performance'. and it doesn't feel different (in terms of usable space) from catalina; at least, it hasn't disrupted my workflow in any way; i've never felt that i've lost any working space.
the 'lags and stutters' sounds like something specifically related to your setup, and might be worth troubleshooting.
the 'lags and stutters' sounds like something specifically related to your setup, and might be worth troubleshooting.