AFAIK, this is a (dangerous and misleading) simplification.

Punishment absolutely works as deterrent. Boy I know people that would absolutely forge the tax declaration, if it wasn't a terrible fine if they do!

The key point is the probability of the punishment being enforced. There is a trade off calculation going on, like "I could get 5 years prison and 10 grand fine... IF they catch me!". Studies suggest, that if you have 100% probability of being caught, then the punishment is extremely good deterrent.