If your problem is memory spikes and not a memory leak and if you have enough physical memory to have a 1-gig JVM process and whatever else you have running on the machine in memory at the same time, go for it. If you do not have enough physical memory, increasing the JVM size could cause the various applications to compete for what is available, resulting in your CPU spending time swapping applications in and out of memory instead of working for your users.
If you have occation spike in memory usage, you may need to increase the heap size. However there is small impact on performance. Typically more the heap the time taken for GC will be also more (however interval between GC also increases). During GC application will experience a freeze. Typically heap size upto 1GB is OK, above that will adverse effect on GC.