The authors investigated the relation between public debt and financial development by controlling the macro and institutional factors in which the debt was issued in countries grouped by income levels for the period of 1994 to 2007. Their findings confirms that the development of a domestic debt market and reliance on domestic debt positively correlates with the level of financial development and macroeconomic stability, while it could have a complex interaction with the institutional framework. The results are robust across specifications and estimation strategies. The issue they address has not only a theoretical but also a policy relevance