The Netherlands and the Nordic countries took the top six places in the study, which considers 60 factors divided over five general categories; free and fair election process, civil liberties, functioning of government, political participation and political culture.
The study examined the state of democracy in 167 countries, with governments grouped in four categories, ranging from full democracies to authoritarian regimes.
Norway scored top marks of 10 in three categories, 9.64 in functioning government, and lost a higher ranking by only scoring 8.13 in political culture (factors like a lack of apathy and peaceful transfer of power).
The reports singled out the USA (17th) and Britain's (23rd) poor results, partly to blame on measures adopted to fight terrorism.
"The United States and Britain are near the bottom of the full democracy category, but for somewhat different reasons. America falls down on some aspects of governance and civil liberties. Despite low election turnouts, political participation in the United States is comparatively high," the report said.
"In Britain low political participation (the lowest in the developed world) is a major problem, and to a lesser extent, for now, so are eroding civil liberties," the report said.
The lowest scores on the scale of ten were seen in Myanmar (1.77), Togo (1.75), Chad (1.65), Central Africa (1.61) and North Korea (1.03).
