Bug: Circular references not allowed for template literal types

Bug Report

🔎 Search Terms

• circularly, template literal

Related issues: #43335.

🕗 Version & Regression Information

• This changed between versions 4.0.5 and 4.1.5 (different bug before)

⏯ Playground Link

Playground link with relevant code

💻 Code

// you can have circular references in tuple types
type OneOrMoreArr0<C> = C | [C, ...OneOrMoreArr0<C>[]];
// note that
//
// type OneOrMoreArr0<C> = C | [C, OneOrMoreArr0<C>];
//
// is also valid
type OneOrMoreArr<C> = Exclude<OneOrMoreArr0<C>, C>;

const noEmptyArr: [] extends OneOrMoreArr<'*'> ? false : true = true;

const x1: OneOrMoreArr<'*'> = ['*'];
const x2: OneOrMoreArr<'*'> = ['*', '*'];
const x3: OneOrMoreArr<'*'> = ['*', '*', '*']

// but when you try and do the same thing with template literal types, you get an error
//
// "Type alias 'OneOrMoreStr0' circularly references itself."
//
// "Type 'OneOrMoreStr0' is not generic."
type OneOrMoreStr0<C extends string> = C | `${C}${OneOrMoreStr0<C>}`

// we should be able to do the above, and then have e.g.,
//
// const y1: OneOrMoreStr<'*'> = '*';
// const y2: OneOrMoreStr<'*'> = '**';
// const y3: OneOrMoreStr<'*'> = '***';


// if 'C' is the empty string, the above just reduces to:
//
// OneOrMoreStr0<''> = '';
//
// otherwise the same logic as with `OneOrMoreArr0` should apply

🙁 Actual behavior

You get the error:

    Type alias 'OneOrMoreStr0' circularly references itself.
    Type 'OneOrMoreStr0' is not generic.

🙂 Expected behavior

This should type check like with the tuple example - it's the same principle, just with template literals.

Start with the linked TypeScript Playground and the reduced recursive tuple and template-literal examples in the issue. Compare how recursive tuple aliases are accepted with how the template literal alias is rejected; done means the OneOrMoreStr examples type-check without the circular-reference errors.