My guess is you could (and should) find yourself explaining yourself to Child Protective Services if someone turned you in for it.
It seems to me that this is a very stupid form of punishment, as well as mean. It leads to no good outcome.
I think punishment for children should have some sort of instructive value beyond inflicting pain. The hope is that children will grow into adults who are thoughtful of their behaviors. A parent's punishment should be an opportunity for the child to learn and and understand consequences, how one's behavior affects others, to respect other people, their time, their property... A parent's job (one of them) is to lovingly instruct.
The use of hot sauce, to me, implies that one has taken the time to devise a punishment that will hurt and continue to hurt for a while. What could possible be the teachable moment in inflicting mindless pain on another person, let alone a child. All they will learn to do is hurt other people who irritate them. Don't we have enough of that already?
But if this a person's preferred method -- to inflict pain because you are ticked off -- then perhaps the hotter the pepper, the better the punishment? Heck, why not a cattle prod?