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The smallest database size keeps the best quality players from each country. The largest database size keeps far more poor quality players from each country.
As a lower league team, you will usually be limited to poor quality players. So it makes sense to keep as large a database as your computer can handle.
A message on a point of nuance: turnip's answered the question implied from your thread title, not many (if any) of us would advocate using the retain players option, which is something your actual question leaves open as a possibility.
I've retained players in my save, but I've done so for all 18 league structures running (plus Mongolia). I wouldn't say it's unbalanced the game, but the option does need to be used with some caution, I think.
player data base size 
Linear Mode
