Yes, scaring children under 4 into behaving by using monsters causes psychological harm.
Children under the age of 4 have a natural tendency to believe everything adults tell them.
Developmentally, their brains cannot yet reliably separate fantasy from reality.
When a caregiver uses threats of monsters to force compliance, the child processes the threat as an immediate, literal physical danger.
Psychological Impacts of Scaring Young Children:
Triggers Trauma Responses: The threat activates a severe fight-or-flight survival response in the brain.
Erodes Caregiver Trust: Children look to parents for safety. Using fear teaches them that their protectors are unsafe or willing to expose them to danger.
Creates Subconscious Imprints: Intense fear at this age leaves deep, lasting imprints in the subconscious mind.
Causes Severe Nightmares: The imaginary threat routinely manifests as vivid nighttime terrors and a profound fear of the dark.
Induces Developmental Regression: Children may exhibit behavioral setbacks like bed-wetting, thumb-sucking, or a refusal to sleep alone.
Fosters Long-Term Phobias: Early childhood terror frequently evolves into chronic, persistent anxieties that last into adolescence.
Developmental Reality Under Age 4:
According to developmental psychologists, children aged 3 to 5 are only able to accurately distinguish real entities from fictional monsters about 40% of the time.
Because their rational minds cannot contextualize a "boogeyman" as a joke or a mere behavioral prompt, the emotional stress remains highly damaging and counterproductive to healthy discipline.
Doesn't sound good to me, basically you'll never know the child and their well developed confident personality if you use this approach..you'll have crushed something they need to develop well.