The article reports on the results of an economic and sociological study conducted by the Institute of Sociology of the Russian Academy of Sciences in collaboration with Daugavpils University (Latvia) in 2020—2021. The study aimed to identify the reasons for the disparity in the development of small towns in Latvia. A comprehensive approach was taken to integrate the results of territorial, spatial and socio-economic analyses. By employing the methodology of indexing and ranking large-scale empirical data characterising the development of all small towns in Latvia, the authors attempt to identify the reasons for the disparity in the development rate of small towns in Latvia. The index of territorial development of regions, cities and rural settlements was developed and has been tested by the State Agency for Regional Development of Latvia since 2013. The data collected were then analysed taking into account the geographical location of small towns. The research showed that the main factors influencing the development of small towns are the level of business activity and the role of local authorities in the provision of public funding. The article describes prospects for the polycentric development of small towns and analyses the ways of reducing disparities in their development in terms of the working and living conditions of their residents.